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The market for offset permits is helping countries hit Paris Agreement targets, finds Jillian Ambrose
The political battle against the world’s rising greenhouse gas emissions has found an unexpected ally – in carbon pollution itself. By putting a price on carbon emissions, and harnessing the powers of market forces, the world’s burgeoning trade of carbon offset permits is gaining traction as a major weapon in the bid to keep global temperatures from rising.
The value of energy commodities including oil, gas and coal may have more than doubled in recent years, but it is the offspring of the fossil fuel industry which is emerging as the next generation commodity to watch.
In the last year alone, the value of Europe’s flagship carbon market has tripled. Fresh analysis shows that the price could be set to double again within the next three years and quadruple by the end of the next decade. The World Bank estimates that carbon markets, and simpler carbon tax regimes, have a value of well over $82bn (£62bn).
“Governments at all levels are starting to see the effectiveness of carbon pricing in their efforts to cut harmful carbon pollution while also raising revenues for climate and other policies, including environmental action,” said John Roome, a senior director at the World Bank.
“As countries take stock of their Paris Agreement commitments and set a path towards increased ambition, carbon pricing mechanisms with robust pricing levels are proving to be essential elements of the toolkit,” he added. It is a rare phenomenon in the battle to tackle climate change: a tact which has won support across the board, from clean energy developers and Big Oil, to Left-leaning environmentalists and pro-market economists.
Royal Dutch Shell and mining giant Rio Tinto have both joined the work carried out by the Carbon Pricing Leadership Coalition. Ben Van Beurden, Shell’s chief executive, has leant the market his personal support.
“Such mechanisms have the effect, over time, of pulling both consumers and industry towards low-carbon products,” he said. “Not least among these would be carbon capture and storage facilities. Until there is a market for carbon, the economic justification for such facilities is hard to make.”
BP’S Bob Dudley believes carbon markets could be the third pillar in meeting the Paris Agreement, alongside lowering the carbon intensity of energy and increasing efficiency. “It’s our belief that among the most meaningful action that governments could take is to bring about clear, stable pricing frameworks that will incentivise low-carbon choices and change the behaviour of individuals, of businesses and of governments,” he said.
The emergence of carbon trading as a viable financial mechanism to spur low-carbon investment was almost unimaginable a few years ago amid fears that the European Union’s Emissions Trading System was in its death throes. The world’s first major carbon trading project was brought to its knees by deep structural flaws and strangled by bureaucratic in-fighting. At the same time, the struggling market battled a multi-billion euro fraud scandal.
It was an inauspicious start for a market intended to save the world from climate change, but after a hard-fought EU recovery deal it could provide a template for other blocs to follow. Under the scheme, European companies with the biggest carbon footprints buy and sell a finite number
‘Governments are starting to see the effectiveness of carbon pricing in efforts to cut harmful pollution’